TMI Blog2000 (5) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... on demand of concessional rate of duty as provided under Notification No. 75/84 dated 1-3-1984 (as amended) following the procedure laid down in Chapter X of Central Excise Rules for manufacture of Xylene. On receipt of information by Preventive Staff of Baroda, on 20th August, 1987 visited the assessees' unit to check the information that out of Raw Naphtha so procured is also used by the assessee for other products other than specified in the Notification No. 75/84-C.E. and part of rest of the raw naphtha were cleared as Hepton i.e. Special Boiling Point Spirit on payment of duty at Rs. 1995/- per MT instead of payment at the rate of Rs. 2750/- per MT if it is cleared as such as provided in Notification No. 75/84-C.E. and thereby they are mis-using the concession extended to raw naphtha by the said Notification. After necessary inquiries; they issued a show cause notice after a lapse of time of 4-10-1990 calling upon the assessees to pay the differential duty and also explain as to why they should not be penalised. The assessee filed a detailed reply supported by technical material to who that there was no suppression of facts, mis-classification or removal of raw naphtha in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eams like BT Rich Stream before return as Return Stream of Raw Naphtha to Gujarat Refinery and/or its sale as Hepton. It was also contended by the assessees before the Collector that the emergence, sale and/or return of Hepton (LR-5012) in no way affects the production. Xylenes either in quantity or in quality that can be manufactured out of Naphtha received from Gujarat Refinery as no quantities of Xylenes are possible to be produced out of the stream termed as Hepton (LR-5012) otherwise, it would have been their pleasure to use it so; that after removal of the off Gases with same Hexanes and formation of C.5 Reformate containing all Hydrocarbons above C.5 Ranges, that too, consequent upon catalytic reforming process, the original Raw Naphtha has been subjected to the manufacturing process relatable to the intended use and it thus looses its identity, and therefore, the question of removal of Raw Naphtha as Hepton does not arise. Therefore, it was contended that the allegation contained in the show cause notice is incorrect and mis-leading. It was further contended that Heavy Ends emerges as an inevitable during the course of manufacture of Xylenes out of Raw Naphtha and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also noted that only some paraffins are converted into aromatics. He has drawn an inferance that 100% conversion of paraffin into Aromatics did not take place. Hence, the stream obtained after the above mentioned reactions still contain a part of paraffins which they received in the feed raw naphtha which is separated by way of distillation, as this stream is at all not required for further manufacture of Xylene. The part of this stream is being stored and sold as Hepton part of the stream is being returned to IOC along with other stream as naphtha. He has also noted that the assessees are not returning the raw naphtha having the same specification and boiling rage as that of received by them for their specific purpose. The feed raw naphtha which they get for manufacturing specified chemicals and the raw naphtha which they return after such use are having different composition i.e. different in it contains of paraffins, naphthanes aromatic different in boiling ranges. He has also noted that the return stream sent to IOC by IPCL after manufacturing the xylene is considered as raw naphtha even though its specifications and properties are different than that of raw naphtha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only duty as fixed for that product and not pay the duty as fixed for raw naphtha. He submits that the department had proceeded on totally erroneous presumption which is totally unsustainable in law. He submits that they were filing the classification list in respect of the product and the same had been approved from time to time. There is nothing which had been suppressed or mis-declared and hence the question of confirming duty for larger period did not arise. There is no mala fide intention at all to impose penalty in this regard. He also relied on the Trade Notice dated 26-3-1973 which is at pages 76 and 77 of the paperbook which clarifies that the concessional rate of duty prescribed for raw naphtha at Sr. No. 3 of the Table annexed to Government's Notification No. 75/84-C.E., dated 1-3-1984, as amended is intended for use in the manufacture of anyone or more products specified in Column 4 of the said Table, notwithstanding the production of other goods which are incidental/inevitable/involuntary in such production and that, in such cases, the whole of the Raw Naphtha would be deemed to have been used in the manufacture of product(s) for the manufacture of which Raw Naphtha wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the xylene and it was as a result of inevitable/incidental in the process of manufacture of xylene. On perusal of the entire records, it is clear that there is no suppression of facts leading to an inference that there has been mis-declaration/mis-statement or suppression of facts to attract larger period. It is also pertinent to note that the department has taken 4 years to issue the show cause notice, in the meantime the RT 12 returns and classification list have been confirmed and approved from time to time. It was also pertinent to note that during this 4 years, the appellants had not been furnished with the test result. The department had not taken any steps to carry out any investigation so as to explain the delay of 4 years to issue the show cause notice. In cases where truck loads of records are seized from various places in the length and breath of the country, in such circumstances, it could not be possible for the department to issue the show cause notice in a time bound frame. Since the enormous evidence would require to be scrutinised, finalised and corroborative evidence found, to prepare the show cause notice. Such a circumstance does not exist in the present case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Ortho-meta splitter for Ortho-Xylene recovery. ORTHO XYLENE UNIT: Here C8 Reformate from reformer unit and C8 Isomerizate from Isom Unit is Mixed and distilled in OM Splitter column. Top of this column is sent to crystallization unit for P-Xylene production and Bottom product is sent to oxylene column. Pure oxylene is obtained at the top of OX column and bottom of this column is sent to a refining column. Refining column top is called solvent C9 and heavy ends removed from bottom of this column are mixed with LR and forms part of the return stream to GR. P-XYLENE UNIT : The crystallizer feed from O-Xylene unit is sub-cooled to -60oC to remove P-Xylene crystals which are then filtered, dried and melted to produce P-Xylene product. The mother liquor from crystallizer is sent to Isomerization section for further processing. Some times part of the mother liquor is removed as mixed Xylene. ISOMERIZATION UNIT : The mother liquor from crystallization is preheated, mixed with Recycle H2 gas and reacted over a catalyst at 400oC and 13.0 kg/cm2 pressure. Reaction products are cooled, light gases removed and distilled to remove low boiling Hydrocarbons. The distillate is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.76. ASTM Distillation IBP 50 C, FBP 125 to 135 C Flash Point Below twenty-five degrees of Centigrade thermometer. Total Aromatics 30 to 45% Toluenes Minimum 30% The produce is a Special Boiling Point Spirit consisting of Hydrocarbons derived from Petroleum (other than Benzene, Benzol, Toluene and Toluol) and falls under the category "(c) Other" at Sr. 6.03 of Notfn. No. 75/84, dated 1-3-1984. It is a medium Aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic Odour. 12. From the K.K. Othmer's Encyclopaedia of Chemical Technology, Third Edition, Volume 17 at pages 218 to 232, it deals with "Petroleum (Refinery Process, Survey)". Page 218 refers to recovery of naphtha from feed by distillation and such process has been referred to as straight-run or virgin naphtha. It states that the feed to catalytic reforming is a naphtha fraction boiling in the 80-230oC range. Lighter fractions are not amenable to reforming, whereas heavier fractions would give products that remain outside of the gasoline boiling range since reforming gives only a small ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the enormous technical evidence and has arrived at his own conclusion without any basis, which is not tenable and unsustainable. As can be noted from the boiling point of naphtha as well as Hepton the specifications which had been recorded in para 24.2 of the order itself clearly discloses that there is a vast difference in the technical details of raw naphtha with that of Hepton. It is difficult to understand as to how the Learned Collector would conclude that the Hepton is nothing but raw naphtha while still holding in para 24.3 that the specifications of feed naphtha is totally different from Hepton. In view of this serious contradiction there is no reason to uphold the same. In the appellants' case, the Hon'ble Supreme Court held that the benefit of Notification cannot be denied to part of paraffins, gasoline generated during the process of manufacture of specified goods from raw naphtha when it is clear that such non-specified goods arise as a result of inevitable/incidental/involuntary to the process of manufacture. The Tribunal's order confirming the demands had been set aside by the Hon'ble Supreme Court. This judgment is totally applicable both on law and facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion mentioned in the above judgment is conspicuous by its absence in Notification No. 75/84-C.E. 18. First and foremost therefore, we are required to determine whether the conditions indicated in the Explanation have been satisfied and if so, to what extent? 19. I find that in this connection the main allegation of the department is that out of quantity of raw naphtha received from Indian Oil Corporation, the entire quantity is not used in the manufacture of the product specified in the Notification but a part of it is returned to IOC and part of it is utilised in the manufacture of the so-called Hepton a part of which is also included in the return stream (and a part is sold). 20. With reference to this is point, I find that in the written submission filed before the Tribunal, the appellants have admitted to the extent that there is a return stream of Raw Naphtha and described it as follows : After separation of the different Xylenes, the residues are brought together along with the light reformate to form the return stream. The total composition (formed by several streams in the aromatic plant) of the return stream fulfils the criteria for raw naphtha of a different g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow 347o F (175o C) and not less than 95 per cent of which distil below 464oF (240oC) when subjected to distillation in accordance with the Standard Method of Test for Distillation of Gasoline; Naphtha; Kerosene; and similar petroleum products (ASTM D 86). F.p - 73oC; b.p. 30-60oC; flash point 57oF (-50o C); autoignition temp. 550o F (287o C) sp. gr. 06. (2) coal -tar (a) Heavy (high-flash naphtha)." Therefore, what is required to be seen is whether in view of this position the charge of the department that Raw Naphtha was being cleared in the guise of Hepton is correct. 27. The appellants have mentioned, inter alia that they have been selling some Hepton and clearing it after paying duty but the point is whether they were clearing it after declaring the required details of the product correctly and paying duty at the appropriate rate. 28. In a number of Tribunal's orders, it has been repeatedly held that the description of the product in the C/List must be sufficient to enable the officers to come to a correct conclusion, inter alia, about the identity of the goods and its classification and/or eligibility to a particular notification. 28. The other point is as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility for use. The criteria for Special Boiling Point Spirits (other than Benzene, Benzol, Toluene and Toluol) with nominal boiling point ranges were incorporated only in the new tariff Notification No. 75/84 has been amended several times. During relevant period prior to 1986 it proposed separate reference numbers namely - 6.01 - Motor Spirit; 602, 6.03, 6.04, 6.05 and 6.06 for Raw Naphtha (depending upon intended use); and 6.08, 6.09 for Special Boiling Spirit with nominal Boiling Ranges. It was significant that the rates of duty prescribed for various reference numbers incorporated criteria for intended use as well in respect of Raw Naphtha as well as Special Boiling Spirits and the Collector's findings is that the test report in the present case does not confirm the assessees declared boiling point range and it is the correctness of this finding which is to be adjudged. 37. It is noteworthy that in the C/List effective from 17-3-1985 includes inter alia, the following declaration : HEPTON T.I. 6 (1) Specifications Density 0.74 to 0.76 ASTM Distillation IBP 50 o C, FBP 125 to 135 o C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to how the appellants have claimed the classification of the product 'Hepton under heading 2710.19 for some period and under 2710.13 during the rest of the period. A question naturally arises whether the method of production, composition or specifications changed at any time; although, that does not seem to be the case as the same specifications and remarks which are in the list effective from 17-3-1985 have been repeated in the C/List for 1990-91 (1A/91-92) and the claim for benefit of Notification No. 75/84 has re-emerged. 44. It is significant that Notification No. 75/84 has undergone many amendments. During old tariff period in the table annexed to the Notification, reference numbers 6.02, 6.03, 6.04, 6.05 and 6.06 cover Raw Naphtha prescribing different rates of duty depending on intended use; And Sr. Nos. 6.08 and 6.09 cover special boiling point spirit with nominal boiling point range (and intended use criteria was provided against 6.09); The nominal boiling point range 55 -115oC and 63-70oC were excluded from the Notification after new tariff was introduced (and were incorporated in the tariff itself) . 45. In the post 1986 period in the amended Notification No. 75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stream although, he had mentioned that as per understanding, this quality should not be worse than that of the feed Naphtha in terms of ISI specifications of Motor Spirit. 51. The appellants' own submissions only go to confirm the Collector's finding to the effect that return stream included Raw Naphtha; and they as have also not been able to dislodge the Collector's finding that what was solid in the name of Hepton was also Raw Naphtha although it was given the brand name of Hepton. 52. In my opinion it is a case of misleading declaration and incomplete disclosure which was not sufficient for the purpose of arriving at a correct decision and the net result has been that it has led to mis-classification and loss of revenue. 53. Hence looking to the totality of the facts and circumstances, the extended period of time-bar was available to the Department. 54. The Supreme Court judgment in the appellants own case is with reference to the second clause in the Explanation to the Notification No.75/84-CE whereas in the present case, we are concerned with the Explanation incorporated in Notification No. 75/84-CE and the first clause of the Notification No. 27/89-CE. Hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming duty for larger period did not arise. Further, he said that department was of the view that relevant clause in the notification No. 75/84 as such was not indicated in the classification list, but, he said that dispute is in respect of classification not of exemption in terms of aforesaid notification. He said that the item in question is S.B.P. spirit and indication of boiling point range is relevant to determine the classification and boiling point range was duly indicated in the classification list as incorporated in the tariff. In fact Chemical Examiner in his report dated 22-9-1986 also indicated the boiling point range of the item is 65 C to 125 C and this was precisely shown by the party in the respective classification lists. He said in the case classification list effective from 17-3-1985 full details and description of the item in question was given with remarks and in the subsequent classification lists since it was same product, same was shown with boiling point range. It is true that the party has claimed classification under heading 2710.13 for the major period and some portion of the period it was claimed under 2710.19. He submitted that since the classificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2710.14 - Raw Naphtha. 2710.10 - Other. 62. In this context, he referred to the decision of the Supreme Court in the very party's case [1997 (92) E.L.T. 294 (S.C.)] wherein it was observed with reference to the exemption Notification 27/89 that the entire quantity of raw naphtha so obtained was subjected to processing for the purpose of obtaining items enumerated in the table. The appellant did not set apart any quantity of raw naphtha for the purpose of obtaining petroleum resins. It has merely subjected the residual pyrolysis gasolene to further processing in the petroleum resin plant for the manufacture of petroleum resins. This residual pyrolysis gasolene cannot be equated with raw naphtha which was obtained at concessional rate of duty. Further, Explanation 2 of the notification provides that in cases where certain goods which are incidential, inevitable or involuntary to the process of manufacture of the products specified in the said table are produced in the course of manufacture the exemption under this notification shall not be denied on the ground that these goods are not products specified in the said Schedule. 63. Argui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct had been affected on the basis of rate of duty approved in respect of classification list and further it also been finalised accordingly. Without going into merits of the case whether item in question is classification as Special Boiling Point Spirit as claimed by the party or Raw Naphtha as per the department, I find that there is a lot of force in the arguments advanced on behalf of the assessee on time bar issue as observed by the Hon'ble Member (Judicial) in his order that the appellants had been declaring all the technical details pertaining to the products. They had also shown that the item Hepton arose as a product while manufacturing Xylene and it was as a result of inevitable/incidental in the process of manufacture of Xylene. In the instant case the department has taken 4 years time to issue show cause notice and in the meantime the RT 12 return and classification list have been confirmed and approved from time to time. No convincing reason is forthcoming why department had taken 4 years time. This position has been properly analysed by the Member (Judicial) in his order. Further, he observed in his order that it can easily be concluded that the period of more than ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
